Just imagine you bought stock a decade ago for a lot of money, a good investment at the time, but then you did not review its value over the intervening years. Merely sitting on the stock may have been the right thing to do. Then again, you may have missed opportunities to invest more profitably elsewhere if the company was not doing well, or to invest more in the stock if it was profitable. Obviously this is not a wise way to handle your investment, but it’s exactly what many companies are doing when it comes to investments in their IT applications!
In many organizations, once the application is implemented and working well its value to the business is not re-assessed for eight or ten years, when the application has to be re-written. Until then, the amount of maintenance either does not change or decreases. All applications tend to be handled the same way; it is a true application democracy. But not all applications are created equal!
Gartner notes that it “has never been more important to tie investments in business/IT initiatives to anticipated and actual improvements in business performance”1. How do you go about assessing such investments?
Application portfolio management
The business value of IT comes from the ability of applications to support the business processes. When the application is written, there is an approved return on investment (ROI), otherwise money and effort would not have been invested to create the application. But this value is not tracked at again. When you consider the entire applications portfolio, consisting of a large number of applications, the investment in applications maintenance is done haphazardly rather than by the value that the application contributes to the business over time.
Application portfolio management is a process that periodically assesses the value that IT applications provide to the business. The same way you review your own financial portfolio, you should review the value that various applications contribute to the business, and then assign future investment to them accordingly. The applications maintenance budget of many companies can be up to 80% of their development budget, so we are talking about a lot of money, in many cases millions of dollars.
But how can IT managers assign value to each application? They don’t. It has to be done together with the business unit that owns and makes use of it. IT can supply information about the cost of maintaining the application while the business unit determines its value. Jointly, the two groups can assess the application’s value to the organization and the cost to maintain it.
The difficult question is: how do you establish the value of the application to the company? This is determined through collaborative discussions using a number of criteria. The value may come from factors such as: contribution to revenue; the ability to make business processes faster, more reliable, more timely; the ability to provide better service to internal and external customers; the ability to provide an information-base to make better informed decisions and allow the company to be more flexible in its decision-making.
Based on these factors, here are some sample questions that could be considered by IT and the user departments in determining the value of any given application: